BOOTH ENTREPRENEUR DELIVERS A TASTY IPO

April 03, 2014

Matt Maloney, SM ’00, MBA ’10, has come a long way from pedaling his bike around the streets of Chicago to gather restaurant menus.

In just a decade, Maloney with his vision, persistence, and charm, built the nation’s largest online food-ordering service, enabling hungry consumers to order from 28,800 restaurants in more than 600 cities. GrubHub on April 4 opened trading on the New York Stock Exchange.

“People like to say ‘this incredible company came out of nowhere.’ But there are those of us who know this has been a long, hard road to the success that they’re seeing today,” said Kevin Willer, ’10 (XP-79), co-founder and partner of Chicago Ventures, a seed-stage venture capital fund and an advisory board member of thePolsky Center for Entrepreneurship and Innovation.

Maloney and cofounder Mike Evans were software engineers who met while working in Chicago at Classified Ventures' Apartments.com, where they wrote code. They came up with the idea for GrubHub because they were hungry and wanted to order food easily, the story goes.

They envisioned the future of ordering food online and hit the streets to get restaurants on board. “They were ahead of the curve,” Willer said. “You couldn’t just say I want to order food online. They had to go to all these restaurants. That’s like hand to hand combat on the street level. That’s a lot of work, a lot of doors slammed in their faces.”

Maloney had earned a master’s degree in computer science at the University of Chicago in 2000. With GrubHub already in an early stage, he enrolled at Chicago Booth. A turning point came in 2006, when the two-year-old start-up won the Edward L. Kaplan, ’71, New Venture Challenge. That first-place finish netted the company $17,500 in funding from Booth and $7,500 from the state of Illinois, as well as guidance for the early iteration of the business.

“The New Venture Challenge provided frameworks, mentoring, feedback, and networks that helped GrubHub refine its business model and accelerate its business,” said Steven N. Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and faculty director of the Polsky Center.

That same year, the company changed its business model from charging an upfront subscription fee for being listing on the website—to a transactional format, where restaurants get paid after an order is placed.

“After that, we saw a dramatic increase in restaurants adopting our ordering platform,” Maloney told the Wall Street Journal in 2012. “Had we remained a subscription service, we would have had a much harder time signing up a critical mass of restaurants.”

GrubHub’s model is successful because it focuses on providing a service to local merchants, not just consumers who use the online ordering service for convenience, said Terry Howerton, managing partner of Chicago-based tech-business incubator TechNexus. “It’s the restaurants that bring in revenue for the company by paying a percentage of sales for the service,” he said. Restaurants pay GrubHub about 15 percent of each sale to use its online-ordering technology.

The company eventually began to attract backers from Silicon Valley, including venture capital giant Benchmark Capital, and had raised about $84 million in venture capital in five rounds of funding before filing plans for its public offering in February.

Last August the company merged with New York-based Seamless Inc. to become GrubHub Seamless, the nation's leading online and mobile food-ordering company. That put GrubHub in a much stronger position to pursue an IPO, Howerton observed. “Imagine the company trying an IPO in a competitive environment against Seamless,” he said.

The combined company had revenue of $170.1 million last year and net income of $4.2 million, according to the company’s IPO filing with the Securities and Exchange Commision.

J.B. Pritzker, the Chicago investor and managing partner of the Pritzker Group investment firm, said Maloney will face a challenge producing the quarter-to-quarter earnings that Wall Street expects.

“But the fact that Matt ended up as the CEO shows how much faith the investors and the board of GrubHub and Seamless have in Matt,” he said. “It’s sometimes the case where people get too big for their britches. Matt has never had that attitude.”—Kevin Davis